Corporate asset-backed security – How 2 best account it in IFRS 9 IAS 32

Corporate asset-backed security – backed by the cash flows from receivables such as leases on aircraft or other corporate equipment, small and medium enterprise (SME) loans, trade receivables. Also includes ‘whole business’ securities (WBS) based on the cash flows of an entire business unit, such as franchise or brand royalties.Corporate asset-backed security

An asset-backed security (ABS) on which payments of principal and interest are made to the holders from revenue generated by an underlying pool of corporate loans. Many times there are no specific pledges to the holders of the securities as collateral for the payment by the issuer of principal and interest on the securities. Corporate asset-backed securities are most commonly issued by a special purpose entity as part of a securitisation or structured finance transaction.

Corporate loans are loans made to businesses for a specific business purpose. There are many types of corporate loans, and lenders change interest rates for these loans based on risk and market conditions, just like individual loans. Without these loans, most companies would not have enough funding for basic business activities. While there are many varieties, several corporate loans are more popular than others. Examples are:

  • A working capital loan is funding for the business to use in its day-to-day activities. These loans are common in industries that have transactions costs for the company. Businesses may also use these loans to pay suppliers or pay employees. Working capital loans can be either secured or unsecured. Corporate asset-backed security
  • Real estate loans are made so businesses can buy property. These corporate mortgages are used if businesses want to own office space instead of rent it, or if a business wants to buy land for a specific purpose, such as growing an orchard or harvesting raw materials.
  • Venture loans are start-up loans allowing businesses to open. Lenders do not like to give out venture loans, since the odds of a new business failing are high. They prefer to see proof that the business will succeed or has the backing of an entrepreneur they have done business with before.
  • Line of credit loans allow businesses to borrow money from a lender at any given time, up to a certain amount of money per year. This is a common arrangement if the business has varying profits from month to month and may need extra funds to cover expenses at certain times.
  • Equipment loans are among the simplest types of corporate loans. These smaller loans help businesses buy major assets. Manufacturers need to buy factory equipment, transporters need vehicles, and offices need computer software and hardware.
Something else -   IFRS 2 Shares to the value of a fixed amount

Types of securities

Security name Description
A residential mortgage-backed security (RMBS) Backed by mortgages for the purchase of a residential real estate. Includes ‘prime’ mortgages, where borrowers have strong credit histories, ‘buy to let’ mortgages, or ‘non-conforming’ mortgages.
A commercial mortgage-backed security (CMBS) Backed by mortgages for the purchase of a commercial property.
Consumer asset-backed security (Consumer ABS) Backed by personal financial assets such as auto loans, credit cards, student loans, and other consumer loans.
A corporate asset-backed security (Corporate ABS) Backed by the cash flows from receivables such as leases on aircraft or other corporate equipment, small and medium enterprise (SME) loans, trade receivables. Also includes ‘whole business’ securities (WBS) based on the cash flows of an entire business unit, such as franchise or brand royalties.
Collateralised debt obligation (CDO) Backed by a mixture of loans/receivables and/or asset-backed securities. Also includes ‘collateralised loan obligations’ (CLO) backed by loans, often to medium-sized corporates.

 Corporate asset-backed security

Corporate asset-backed security

Corporate loans are loans made to businesses for a specific business purpose. There are many types of corporate loans, and lenders change interest rates for these loans based on risk and market conditions, just like individual

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